4 Documentation and Recordkeeping
5 Time, Money, and Quality Chapter Outline
O Learning Objectives O Introduction
O Introductory Case Study
O Ethical Challenges
O Applicable Standards
O Construction Participant Perspectives
O Questions and Scenarios for Discussion
Learning Objectives
After reading this chapter, you should be able to:
O Describe the ethical challenges that can occur with respect to time, cost, and quality during the management of a construction project.
O Imagine and evaluate potential consequences resulting from ethical decisions made during the management of a construction project.
Introduction
When a contractor signs a construction contract with a project owner, the contractor commits to completing the scope of work defined in the contract documents:
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O for the price stipulated in the contract agreement;
O by the date required in the contract; and
O to the quality standards required by the specifications.
The project construction schedule submitted at the start of construction represents the contractor’s best estimate regarding the amount of time that will be required to perform each task. However, during the execution of the work, things may occur that will affect the execution of the work necessitating updates to the construction schedule. Periodic schedule updates may be required by the construction contract, or may be required whenever the projected completion date changes.
Just as with the schedule, the cost of completing the project may increase. The cost increases may be due to:
O errors in estimating the cost;
O reduced worker productivity;
O mismanagement of subcontractors; or
O increase in the scope of work.
Scope increases typically are addressed by change orders, while the other cost increases typically are covered by the contractor in a stipulated sum contract or by the project owner in a cost-plus contract. This is because the contractor agrees to complete a specific scope of work for a fixed price in a stipulated sum contract, whereas direct project costs generally are reimbursable in cost-plus contracts.
Material testing requirements and other quality standards are contained in the contract specifications. Some tests may be performed by the contractor, while others may be performed by the project owner or a third- party testing agent. Documentation of all tests is required to be submitted to the project owner. In addition, the owner or her representative usually conducts frequent quality inspections as part of a quality assurance program.
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Introductory Case Study
Capital Construction Company has a contract for the construction of a middle school. The contract stipulates that substantial completion must be no later than August 15 to enable the school to move into the building prior to the start of the school year at the beginning of September. If the school is not completed on time, the contract states that liquidated damages will be assessed at the rate of $1,000 per day after August 15. During the procurement of materials for the project, the contractor failed to order needed wall covering for the library and the correct number of interior doors. The contractor’s project manager updated the construction schedule for the project to determine the impact of the late delivery of these needed materials. He determined that the impact would be a two-day delay of the completion of the project. He reviewed the schedule and determined that interior painting was on the critical path for the project. To enable the project to be completed on time, the project manager contacted the painting subcontractor and told them that they needed to complete the interior painting in 12 days rather than the 14 days currently scheduled at no additional cost. Was the project manager treating the painting subcon- tractor ethically?
When preparing the monthly application for payment to the project owner, Capital Construction’s project manager reviewed the payment requests that had been received from the subcontractors and the status of work being performed by Capital’s workforce. One of the payment items, cast-in-place concrete, being constructed by the contractor’s crews seemed to be about 50 percent complete. The site work subcontrac- tor’s request for payment indicated that the site work was 70 percent complete. Wanting to minimize negative cash flow on the project, the project manager decided to submit a request for payment to the project owner indicating that the concrete work was 65 percent complete and that the site work was 85 percent complete. Were the actions of the project manager ethical?
While inspecting the installation of the floor covering in the classrooms, the contractor’s superintendent noticed that the floor covering installed was not certified as inflammable as required by the contract specifications. Observing that the floor covering was installed properly and looked good, the
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superintendent decided not to determine whether or not the floor covering material was inflammable. Were the actions of the superintendent ethical? During a weekly inspection, the contractor’s superintendent noticed that mechanical pipes suspended from the ceiling were not installed in conformance with the local building code. The installed pipe looked safe and would later be covered with suspended ceiling. Because the mechanical work was behind schedule, he decided to accept the work and not notify the mechanical contractor to correct the work. Were the super- intendent’s actions ethical?
Ethical Challenges
Ethical Challenge: Schedule Management
Most construction contracts specify a date by which the construction contractor must achieve substantial completion, which is when the project can be used for its intended purpose even though some work remains to be completed. Failure to achieve substantial completion by the specified date often subjects the contractor to payment of liquidated damages for each day that they are late in achieving substantial completion. To avoid liability for liquidated damages, the contractor develops an initial construction schedule showing completion of the project by the required date. The schedule shows:
O the tasks to be performed;
O the length of time to perform each task;
O the sequence in which each task is to be performed; and
O milestone dates for the completion of the project.
When events occur that impact the completion of the individual construction tasks, these impacts need to be reflected correctly on the schedule so that the impact on the overall schedule for completion of the project can be assessed. Sometimes schedule updates are manipulated to incorrectly indicate the causes of schedule delays. The result may be to incorrectly reflect the causes and impacts of delays in the individual tasks. This manipulation of the schedule is considered unethical.
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Ethical Challenge: Progress Payment Requests
Most construction contracts require the submission of applications for payments monthly near the end of the month for the work performed during the month. The general contractor’s payment application also includes the payment requests from those subcontractors who worked on the project during the month. The project owner reviews the applications for payment and reviews the status of the project. Based on her review of the project, the project owner’s project manager either verifies that the indicated amount of work is correct or engages in a discussion with the general contractor to reconcile the differences. Once agreement has been achieved regarding the amount of work that has been completed, the project owner makes payment to the general contractor, who in turn makes payments to the subcontractors. Since the measurement of the actual work performed during a month may be subjective, there are opportunities for subcontractors or general contractors to bill for work that has not been completed. This is known as overbilling and is considered unethical.
Ethical Challenge: Quality Management
The construction contract specifications contain quality requirements regarding the types of materials and products that are acceptable for the project, the standards for their installation, and the quality of workmanship expected. The submittal process described in Chapter 3 is used to verify that materials and products proposed for the project conform to contract requirements. Quality management involves inspection of project documentation, conducting testing when required, and inspecting the construction work as it progresses. Any discrepancies noted during the inspections generally are placed in a database for tracking until corrected. Follow up inspections are made to ensure that all discrepancies are corrected. Failure to comply with construction quality standards is considered a failure to comply with contract requirements and is considered unethical.
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Ethical Challenge: Code Compliance
Many code requirements are incorporated into construction contract specifications by reference. These may include building codes, electrical construction codes, mechanical construction codes, fire protection codes, and occupational safety codes. This is the same as if all of the code requirements were listed in the contract specifications. Compliance with all code requirements is the responsibility of the general contractor. Municipal requirements will specify which inspections must be performed by municipal inspectors during the various phases of the construction project. It is both unethical and in violation of contract requirements to knowingly install improper materials or equipment or to install materials in an improper manner. Upon discovery by inspectors, non-conforming work will be required to be removed and replaced at the contractor’s expense.
Safety inspectors may visit the project unannounced to verify compliance with all safety requirements. Failure to comply with required safety require- ments usually results in citations and potential fines. Contractors are legally and morally responsible for the working conditions on the project site. Failure to enforce good safety practices is considered unethical.
Applicable Standards
The applicable standards are to practice good faith and fair dealing when addressing time, money, and quality issues during the execution of construction contracts. General contractors need to be fair with subcon- tractors and project owners when:
O managing their construction schedules;
O requesting change orders;
O submitting applications for progress payments;
O ensuring that quality products and materials are used;
O ensuring that the completed work conforms to quality requirements of the contract; and
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A contractor’s professional reputation is greatly influenced by project owners’ perceptions of how the contractor handles these important issues. The contractor’s performance regarding these aspects of contract management may affect whether or not the contractor will have future opportunities to work with the project owner on other projects.
Construction Participant Perspectives
When project owners select general contractors for their construction projects, they expect the contractors to treat them fairly and to fully comply with all of the terms and conditions of the construction contracts. Likewise, subcontractors expect to be treated fairly when invited to partic- ipate on a project. If they perceive that they might not be treated fairly, they may decline the contractor’s request to submit a quotation for the work. It is very important for general contractors to maintain good relations with quality subcontractors because their willingness to participate on future projects may significantly affect the success of those projects.
The construction schedule is used to manage the execution of the project. The project owner expects that schedule updates accurately depict the impacts of changes that have occurred during the execution of the project. Subcontractors use the schedule to plan their work, so they also expect it to be current and that the milestone dates depicted will occur as scheduled.
Project owners expect that monthly requests for progress payments are completed accurately and that they are based on the quantity of work completed during the period covered by the request. Subcontractors expect to be paid as soon as the general contractor receives payment from the project owner. Failure to pay subcontractors promptly may cause them financial stress and economic hardship.
Project owners expect general contractors and their subcontractors to perform all quality control measures required by the contract and to ensure that all work performed meets quality and code requirements. This means that contractors and subcontractors must be knowledgeable of the require- ments of all codes listed by reference in the contract specifications.
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Questions and Scenarios for Discussion
Evaluate the following scenarios.
1 A contractor has a contract for the construction of a large retail store located within a shopping complex. The project owner is very inter- ested in getting the store completed by mid-October to enable the store to open in early November to serve holiday shoppers. The contract contains a provision for $2,000 in liquidated damages for each day beyond October 15 that the contractor achieves substantial completion. During the excavation for the installation of utility lines for the project, the contractor encountered an unanticipated buried water line, which will require additional time to work around. The construction schedule for the building showed five days of float for the utility line construction, and the estimated time for the additional work was three days. Thus the extra work associated with the buried water line would not extend the duration of the project. Because two activities on the critical path were behind schedule, the contractor’s project manager changed the logic of the construction schedule to show that the utility line construction was a critical activity and requested a three-day extension to the required project completion date to address the work associated with the buried water line.
O Were the actions of the project manager ethical?
O How would you have handled the situation?
2 A contractor has a contract for the construction of a parking garage that contains significant quantities of cast-in-place concrete. The contract specifications require that concrete cylinders be made and tested to verify the strength of the concrete mix. Three samples were taken when placing the concrete for the second floor deck slab and sent to an independent testing laboratory. Two of the samples met the contract specifications regarding strength, and one did not. Consequently the contractor’s project engineer decided to provide the project owner only the test results for the two samples that met the contact requirements.
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O Were the actions of the project engineer ethical?
O How would you have handled the situation?
3 Cascade Construction has a contract for the construction of a medical office building. The company’s project manager decided to hire a subcontractor for the installation of drywall on the project. The drywall subcontractor has been lax at ensuring that all of their workers wear proper personal protective equipment. Cascade’s superintendent observed that some of the drywall subcontractor’s workers were not wearing gloves and hard hats on the project, but made no attempt to correct the situation even though Cascade’s accident prevention plan for the project requires the wearing of both gloves and hard hats.
O Were the actions of the superintendent ethical?
O How would you have handled the situation?
4 Central Constructors has a fixed-price contract for the construction of a community college classroom building. The company’s project manager was developing the monthly application for payment to be submitted to the project owner. All of the subcontractors except the mechanical subcontractor had submitted their applications for payment to Central Constructors. Even though the mechanical subcontractor did not submit an application of payment, the project manager planned to include the mechanical work in the application for payment to be submitted to the project owner. The project manager estimated that about 20 percent of the mechanical work was completed during the month. Wanting to help Central Constructor’s cash flow on the project, the project manager decided to indicate that the mechanical subcontractor had completed 35 percent of the mechanical work in the application for payment submitted to the project owner.
O Was the project manager being ethical when he billed for the mechanical scope of work when no request for payment was received from the mechanical subcontractor?
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O Was the project manager being ethical when he billed for 35 percent of the mechanical work when he believed that only 20 percent of the mechanical work had been completed?
5 Acme Construction has a contract for the construction of a hospital. The company’s project manager subcontracted both the electrical and mechanical scopes of work to separate subcontractors. The project superintendent developed a three-week look ahead schedule which showed that the electrical subcontractor could start to work on the project on September 20 and told the subcontractor to start work on that day. The electrical subcontractor arrived with their workers on September 20 and found that the project was not ready for electrical rough-in to start. The project site was not ready for the electrical subcontractor to start work until September 24. Being delayed, the electrical subcontractor submitted a claim to Acme for the additional cost incurred by the delay. Acme’s project manager took the claim, added mark-up for Acme, and submitted it to the project owner for payment.
O Were the actions of the project manager ethical?